British Democratic Politics, 1815-1850: Free Traders | History Optional for UPSC (Notes) PDF Download

Free Traders

• The discussion about whether free trade is better than protectionism became more intense in the early 19th century.
• In Britain, groups with strong interests aimed to shield their businesses from foreign competition and ensure access to resources by using tariffs and export restrictions.
• The old protectionist mindset in Britain was reflected in the 17th-century Navigation Acts, which governed English ships and regulated trade and commerce with other countries.
• In 1815, the British government enacted the Corn Law, which limited grain imports.
• During this period, the export of machinery and skilled workers was also banned.
• By the 1820s, influenced by Adam Smith's "Wealth of Nations" and David Ricardo's "Principles of Political Economy and Taxation," several individuals in Britain began advocating for a shift towards free trade. These advocates included Thomas Tooke, William Huskisson, Robert Peel, Richard Cobden, John Russell, and James Wilson.
• There was a growing belief among merchants and manufacturers that British industry was strong enough to compete without protection from foreign rivals.

Additionally, there was concern that maintaining high import duties could provoke foreign countries to impose similar restrictions on British goods.

Successes of the Free Trade Movement

The old protectionist attitudes faced growing criticism in Parliament.

• In 1820, merchants from Britain’s major trading cities—London, Manchester, and Glasgow—petitioned the House of Commons to abolish all duties, advocating for free trade.
• This advocacy led to the Reciprocity of Duties Act in 1823, which allowed Britain to sign mutual trading agreements with foreign powers on an individual basis.
• It became widely accepted that freeing trade in this manner would reduce production costs, enhance international competitiveness, boost exports, and ultimately increase prosperity.
• As President of the Board of Trade from 1823 to 1827, Huskisson promoted free trade policies during Lord Liverpool’s premiership.
• In the 1830s, free trade economic liberalists gained political traction, influencing the sentiments of the time.
• Wilson, another advocate from Manchester, founded The Economist in 1843 to promote free trade policies.
• However, free trade did not align with the interests of all merchants and shipowners and was not fully implemented until the 1840s and 1850s.
• Cobden, a Manchester merchant, criticized the Corn Law for driving up grain prices, which in turn forced British enterprises to pay higher wages.
• British merchants sought to liberalize external trade to align grain prices more closely with those on the European continent.
• In 1846, amidst divided opinions, Parliament repealed the regulations that had protected British corn prices since the end of the Napoleonic Wars.
• Three years later, the Navigation Laws, which had supported the protection of British goods for two centuries, were also repealed.
• In his 1853 Budget, Chancellor of the Exchequer William Ewart Gladstone repealed or reduced duties on 250 articles. In his next Budget in 1860, he eliminated nearly all remaining protectionist regulations.

Adoption by Other European Countries

• As free trade ideas gained traction, other European nations began implementing free trade economic policies.
• In the 1850s, various French government proposals aimed at reducing trade barriers emerged.
• The Cobden-Chevalier Commercial Treaty, signed between France and Britain in 1860, reduced import tariffs between the two nations.
• This treaty resulted in a doubling of exports between France and Britain and significantly contributed to industrial growth in France, advancing its industrial revolution.
• Nations such as Belgium, the Netherlands, Norway, Piedmont, Portugal, Spain, and Sweden began moving towards free trade.
• The 1860 Cobden-Chevalier Commercial Treaty encouraged more free trade policies and agreements.
• Reciprocal trade agreements were negotiated by Britain, France, Germany, and Italy.
• The economies of western European nations expanded due to industrialization and trade liberalization, reaching the peak of the nineteenth-century free trade movement in 1873.

The Impact of Free Trade

• Free trade and free market advocates faced challenges from regulation and protectionism.
• Periods of revolution and war appeared to favor protectionists.
• When free trade temporarily prevailed in the nineteenth century, it fostered broad economic growth, reduced the protection of private interests, increased competition, and leveled the playing field.
• In this context, free trade could be viewed as fairer than the mercantilist and protectionist policies it contended with.
• However, in the case of free trade with colonies, it was predominantly one-sided, allowing exports to colonies to be free of tariffs while imposing restrictions on imports from colonies.

Introduction to Britain's Shift from Free Trade to Protectionism

In the late 19th and early 20th centuries, Britain faced significant economic challenges that prompted a shift from its long-standing commitment to free trade. This shift was marked by the passage of the Import Duties Act in 1932, which imposed tariffs on imports while favoring goods from within the British Empire. This change aimed to revitalize the struggling economy and reflected a broader global trend toward protectionist policies during periods of economic hardship.

Back to Import Duties:

• Britain maintained an official commitment to free trade into the 20th century, even as several European nations reverted to protectionist policies during the era of New Imperialism, which began in the 1870s.
• However, the collapse of Britain's industrial dominance during the depression of the 1920s left little choice but to abandon free trade in a desperate bid to rejuvenate the economy. This significant shift in trading policy was marked by the passage of the Import Duties Act in 1932.

Import Duties Act of 1932:

• The Act imposed a ten percent tariff on imports.
• Goods from within the British Empire received preferential treatment under the Act.
• This preferential treatment was part of a broader strategy to secure concessions on British exports in return.

Intellectual Basis of Free Trade:

• In the 19th century, Great Britain stood as a stronghold of individualism, where the principle of political economists—laissez faire—shaped public opinion. This prevailing sentiment aided Parliament in dismantling the remnants of a mercantilist state.
• Driven by two interconnected intellectual currents—the individualist philosophy of the Benthamite Utilitarians and the free market economics of the Classical School—this era, marked by a fervent embrace of self-interest, self-help, and atomistic individualism, is aptly characterized as an "age of laissez faire."

Jeremy Bentham:

• Laissez faire, in practice, emerged as a crucial principle of Benthamite reform. Bentham's assertion that individuals are the best judges of their own happiness guided legislative efforts to eliminate burdensome restrictions.

Adam Smith:

• Smith's contribution lay in his theoretical rebuttal of the mercantilist stance that favored exports while discouraging imports, particularly manufactured imports. For instance, imposing high duties on imports produced more cheaply elsewhere often stifled domestic competition and fostered the growth of inefficient industries. Among Smith's key contributions to free trade economics were his thorough analyses of the economic advantages of labor division and the societal benefits of private self-interest.
• Nations that specialize in industries where they are most competitive under unregulated conditions make the most efficient use of their labor and productive resources. Consequently, both the specializing nations and their trading partners reap benefits.

David Ricardo:

• David Ricardo is credited with the theory of comparative advantage. This concept suggests that even nations lacking absolute advantage (the ability to produce goods at the lowest possible cost) can still gain by focusing on the production of goods with the greatest relative competitiveness in the market compared to other goods.

James Mill:

• James Mill, the father of the influential economist John Stuart Mill, provided the most comprehensive explanation of comparative advantage among classical economists. In response to a vigorous public debate surrounding Britain's protectionist Corn Laws, Mill argued that protectionist tariffs resulted in an absolute economic loss.
• Taxes on imported corn led to higher corn prices in Britain, necessitating the cultivation of less productive land. This, in turn, increased land value and rent costs, ultimately leading to higher wages. By protecting an inefficient product, a widespread set of increased costs ensued, resulting in a net absolute loss.
• Resources would have been better allocated to sectors of the economy that did not require protection because they were already competitive—where national comparative advantage already existed.

More about the Corn Laws (1815)

• During the Napoleonic Wars from 1799 to 1815, Britain faced restrictions on importing large quantities of grain from Europe.
• However, this situation changed in 1815, following the end of the war.
• British landowners, concerned about the potential influx of cheap foreign grain, collaborated to pass the Corn Laws.
• The British Corn Laws aimed to help landlords maintain the high agricultural prices they had enjoyed during the war.
• A sliding scale was implemented, with import duties gradually increasing as the price of British grain fell.
• While landowners supported the measure, political economists like David Ricardo strongly opposed it.
• In 1839, John Bright and Richard Cobden, both cotton textile manufacturers, established the Anti-Corn Law League.
• Public opinion shifted in favor of free trade by the 1840s, with a growing belief that government should minimize interference in the economy and that countries should trade without import duties.
• In the early 1840s, Prime Minister Peel, representing the Tory Party, abolished many tariffs.
• Ultimately, the decision by Sir Robert Peel's government to abolish the Corn Laws in 1846 symbolized Britain's commitment to unilateral free trade.
• This decision preceded a period of Europe-wide trade liberalization that lasted from approximately 1860 to the late 1870s.